Strategic management unit-II


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Strategic management unit-II

  2. 2. COMPETITIVE AdVANTAGE & COMPETITIVE STRATEGy Competitive advantage Competitive advantage implies gaining the edge on others – using resources & capabilities competitive strategy • Consists of business approaches to – Attract customers by fulfilling their expectations – Withstand competitive pressures – Strengthen market position
  3. 3. PORTER’S GENERIC COMPETITIVE STRATEGIES Competitive advantage come from one of two sources: Having the lowest cost in the industry Possessing a product or offering a service that is perceived as unique in the industry Another important factor is the scope of the product-market (broad or narrow) Mix of these factors provide basis for Cost leadership strategy (low-cost strategy) Differentiation strategy Focus strategy
  4. 4. 4 Generic Building Blocks of Competitive Advantage
  5. 5. 5 Generic Strategies Differentiation Low-cost leadership Focus
  6. 6. PORTER’S GENERIC COMPETITIVE STRATEGIES Market Scope Competitive Advantage Low Cost Differentiation Broad Narrow Cost Leadership Differentiation Focus (Low Cost) Focus (Differentiation)
  7. 7. COST LEAdERShIP STRATEGy • Objective: – Gain sustainable competitive advantage over competitors, using low-cost (not price) – Produce for broad customer base Low cost implies OVERALL LOW COST Not just low manufacturing or production cost Product quality cannot be ignored
  8. 8. ChARACTERISTIC Of COST LEAdERS Strict attention to production controls Rigorous use of budgets Little product differentiation Limited market segmentation Emphasis on productivity improvements
  9. 9. dIffERENTIATION STRATEGy • Objective – Offering products/services perceived as unique over the brands of rivals in an industry • Keys to Success – Offer products/services that create value to customers – Offer products/services not easily matched or easily copied by rivals – Not spending more to differentiate the firm’s products or service than the price premium that can be charged
  10. 10. Benefits of Differentiation • A product / service with unique and appealing attributes allows a firm to – Command a premium price and/or – Increase unit sales and/or – Build brand loyalty = Competitive Advantage
  11. 11. Focus strategy Firm pursues either a cost leadership or differentiation strategy but in a narrow customer group of segment Concentrates on serving specific market niche Geographical area Type of customer -- specific group of customers Specific & specialized product line
  12. 12. Focus Strategy Objective Serve the niche customers better than competitors Keys to Success Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment
  13. 13. Focus Approaches Approach 1: Cost Advantage Achieve lower cost than rivals in serving the specific or narrow segment Approach 2: Differentiation Advantage Offer customers in niche market something unique in that market Product features Product innovations Product quality Customer responsiveness
  14. 14. Examples of Focus Strategy – Rolex: Serve highest end of wristwatch market (premium pricing & image) Rolls-Royce: Serving luxurious end of automobile market (premium pricing & image)
  15. 15. © Ram Mudambi, Temple University, 2007 3-15 The Sustainability of Competitive Advantage Barriers to imitation Speed of imitation by competitors in reducing advantage Imitation by acquiring similar resources Imitation of capabilities (more difficult) Limits on competitors Prior strategic commitments Absorptive capacity for change Industry dynamism The rapid innovation shortens product life cycles.
  16. 16. 3-16 Why Do Companies Fail? What went wrong? Inertia Companies find it difficult to change their strategies and structures Prior strategic commitments Limit a company’s ability to imitate and cause competitive disadvantage The Icarus paradox
  17. 17. 3-17 Avoiding failure and sustainingAvoiding failure and sustaining competitive advantagecompetitive advantage Focus on the building blocks of competitiveFocus on the building blocks of competitive advantage.advantage. Institute continuous improvement andInstitute continuous improvement and learning.learning. Track best industrial practice and useTrack best industrial practice and use benchmarking.benchmarking. Overcome inertia.Overcome inertia.